The Trader's Guide to Charting

Trader’s Guide to Charting Options Money Maker, LLC

Mark Dannenberg

www.OptionsMoneyMaker.com

“Chart analysis is the first step towards being a successful trader” Mark Dannenberg, Founder- Options Money Maker

Trader’s Guide to Charting

About Your Coaches

Mark Dannenberg is an options industry veteran with over 30 years of experience trading the markets. Trading is a passion for Mark and in 2006 he began helping other traders learn how to profitably apply the disciplines he has created as a pattern for successful trading. Mark’s teaching style and experience with all market conditions is the perfect combination for any trader hoping to improve their trading. He is actively engaged in the markets every day and guides traders through the real-time decisions necessary to succeed through his daily position reviews. Mark’s desire is to help people achieve financial liberation and lifestyle freedom through options trading. Mark’s knowledge and years of experience as well as his passion for teaching make him a sought after speaker and presenter.

Mark coaches traders using his personally designed intensive curriculum that, in real-time market conditions, teaches each client how to be an intelligent trader. His seminars have attracted as many as 500 people for a single day.

Mark continues to develop new strategies that satisfy his objectives of simplicity and consistent profits. His attention to the success of his students, knowledge of management techniques and ability to turn most any trade into a profitable one has made him an investment education leader. This multi-faceted approach custom fits the learning needs and investment objectives of anyone looking to prosper in the volatile and unpredictable economic marketplace.

Mark has a BA in Communications from Michigan State University. His mix of executive persona, outstanding teaching skills, and real-world investment experience offers a formula for success to those who engage his services.

Erin Ruemmele joins us from Colorado where she loves to snowboard and hike with her husband and dogs. Erin’s interest in trading started at a young age with a stock market class in middle school. After years of virtually trading and attending seminars, Erin began trading in 2009 by learning the strategies and techniques developed by Mark Dannenberg. In 2010, she earned her first official track record by trading her personal account to an 84% return. Erin loves being a part of the Options Money Maker team helping clients learn how to become successful traders.

This document is the property of Options Money Maker, LLC and is furnished with the understanding that the information herein will not be distributed to any person who is not a client of Options Money Maker, LLC. Additionally, this manual will not be reprinted, copied, photographed or otherwise duplicated either in whole or in part without written permission from Mark Dannenberg, Founder of Options Money Maker, LLC. This work has been created and provided as part of a paid service and is intended to be used by the person who is the

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Trader’s Guide to Charting registered client of Options Money Maker, LLC. Each copy has a numerical identification registered to the person who paid, or has otherwise been authorized by, Options Money Maker to use the material. This work is protected by copyright. Welcome to Charting!

Congratulations on making the decision to take control of your financial future! Charting is the first step in learning how to trade and earn consistently high returns while mitigating the risks associated with trading options.

Options, when understood, can build wealth and create financial independence starting with a small amount of capital. Too many people make investment decisions based on fear…..the fear of missing out on a perceived opportunity or the fear of losing money. Learning the step-by-step approach to trading profitably empowers the trader with confidence. By signing up for the Options Money Maker training, you have already separated yourself from the crowd by choosing to learn.

In this Trader’s Guide to Charting you will learn how to read multiple technical indicators on a chart. These are clues that reveal the strength or weakness of a stock. When a skilled trader knows the directional bias of a stock, it is easy to turn the movement into profits.

The Options Money Maker learning approach is designed to build confidence, provide knowledge, and put each trader on the path to building wealth. Enjoy the experience!

“Nearly any man can withstand adversity. If you want to test the character of a man, give him power.”

- Abraham Lincoln

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Trader’s Guide to Charting

Charting – The Key to Profitable Trading Chart analysis is essential to consistent, successful and profitable trading. Selection of the right strategy, to ensure profitable trading, is always based on a technical analysis of the chart. Understanding each of the trend, momentum, and technical indicators and how, together, they provide information regarding the directional bias of the stock, will improve the traders success and profits.

This guide will discuss the following technical indicators used to assess the directional bias of a stock. The key is to find a consensus between multiple indicators. Not all will align and point to the same bias however, when several of them do, it is a strong indication a movement is coming and you have been provided a clue as to which direction that movement will be.

• Support and Resistance • Bollinger Bands • Awesome Oscillator • Twin Peaks Patterns • Zero Line Cross Over • Price/Momentum Divergence • Bearish and Bullish Divergent Bars • OOPS Patterns • Stochastics

Chart Programs There are several very good charting tools available. Some are free and offer limited choices. Others are very expensive and offer access to nearly every technical indicator available. The broker and trading platform you use will offer a chart package and, again, some are better than others. Start with what your broker offers then, once you are more familiar with charting and trading you will have the knowledge to evaluate the various chart packages available. Regardless of what package you choose, you must have access to the full set of technical indicators discussed in this guide.

Chart Format OHLC bar charts are the preferred format. Analysis begins with a one year, daily chart. Each bar on a one year, daily chart, represents the full trading range for a single day. OHLC stands for Open,

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Trader’s Guide to Charting

High, Low, Close. The bar chart format is easy to read and provides all the information we need, along with our technical indicators, to assess the directional bias of a stock.

Support and Resistance Parallel lines are drawn on a chart to represent the support and resistance price levels of the stock. The bottom line along a series of low price points is referred to as support. At this Parallel lines that form a price level the stock is finding support and has shown channel around the highs and lows during a specific time historically, that is has a bias to trade higher. period.

The top line of the two parallel lines will be placed along a Not every price point needs to series of high price points. This line is the resistance line and touch support or resistance. refers to the price level which the stock has not successfully Study multiple time periods. traded above. to gain a clear view of the long- and short-term trends. The time period used to capture high and low price points depends on how long the pattern continued. Patterns will have different periods and some patterns will be inside other, longer time periods. It is a good idea to assess multiple time periods.

When the bar is touching, or very near, either the support or resistance line it is the first strong indication of a movement in the opposite direction. If the daily bar is near resistance, there is a strong bias that the stock will move lower, back towards support. If the daily bar is near support, there is a strong bias that the stock will move higher, back towards resistance.

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Trader’s Guide to Charting

Diagram 1

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Trader’s Guide to Charting

Bollinger Bands The purpose of Bollinger Bands is to provide a view of when the price of the underlying equity is high or low. Very simply, prices are high at the upper band and low at the lower band. Bollinger Bands

When used in combination with other technical indicators, v Volatility indicator. Bollinger Bands can be a strong indication of the directional v Trading at the upper BB bias of the equity. If a stock was trading at the upper BB indicates a bias to move while also trading at Resistance, the chart would be providing lower. two indications of a likely decline in the price of the stock. v Trading at the lower BB indicates a bias to move

higher.

Upper 3 standard deviation Bollinger Band

Upper 2 standard deviation Bollinger Band

Lower 2 standard deviation Bollinger Band

Lower 3 standard deviation Bollinger Band

Diagram 2

Awesome Oscillator The Awesome Oscillator is displayed as a histogram showing the market momentum based on a comparison of the last 5 price bars to the last 34 price bars. The AO helps us see what is coming!

When the momentum of the past 5 bars is weak compared to that of the 34 bar period, the AO displays this shift as a red bar. When the recent 5 bar momentum is stronger, the AO displays the shift as a green bar. The AO displays these shifts by a series of red and green bars. Series of red bars indicate declining bias. Series of green bars indicates rising bias. (See diagram 3)

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Trader’s Guide to Charting

Awesome Oscillator...continued…

Diagram 3

Related to the AO are Zero Line Cross Over, Twin Peaks Patterns and Price/Momentum Divergence. When the AO is added to the other technical indicators, traders are able to assess which way a stock is likely to move. Knowing that is the first step towards profits!

Zero Line Cross Over When the AO crosses over the zero line, moving from above to below, this is a declining bias indicator. A rising bias is indicated when the AO crosses over the zero line, moving from below to above.

Twin Peaks The Twin Peaks pattern indicates a declining bias when the AO forms a series of green and red bars where each transition from green to red (a peak) is smaller than the previous peak.

A rising bias is indicated when the AO forms a series of green and red bars where each transition from green to red (a peak) is larger than the previous peak.

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Trader’s Guide to Charting

Twin Peaks Pattern…continued…

Declining Twin Peaks

Rising Twin Peaks

Diagram 4

Price/Momentum Divergence (Angulation) Declining Bias - When the AO shows declining momentum and, during the same time period the price of the stock is showing a rising trend (higher highs and higher lows), there is divergence that is forecasting an eventual decline in the price of the stock. (Diagram 5). When momentum weakens, price may still rise for a period however, without momentum the price will snap back because there is not enough buying volume to maintain the upward price momentum. Imagine a rubber band stretched between the two ends of the “V” formed by the two trend lines.

Angulation is a very strong Price signal which, when Rising combined with other indicators, can be an excellent set-up for a short- term, highly profitable trade.

Declining Momentum When the “rubber band”

snaps, price declines.

Diagram 5

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Trader’s Guide to Charting

Price/Momentum Divergence (Angulation)…continued… Rising Bias - When the AO shows rising momentum and, during the same time period the price of the stock is showing a declining trend (lower lows and lower highs), there is divergence that is forecasting an eventual rise in the price of the stock. (Diagram 6). When momentum strengthens, price may still decline for a period however, eventually, increasing momentum will push the price Inverse action between price higher. and the AO is like having a forecast of where the price is going.

Use Price/Momentum Divergence with the other technical indicators to see moves before they happen

Declining Price

Rising Momentum Diagram 6

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Trader’s Guide to Charting

Bearish (Bullish) Divergent Bars (BDB) Using an OHLC bar chart, when the high of the current bar is higher than the previous bar AND the current bar closes in the bottom 50% of the bar, this is called a Bearish Divergent Bar and it is one more clue of a declining bias.

Bullish divergent bars have lows that are lower than the previous bars low and they close in the upper 50% of the bar. This is a supporting indication of a rising bias.

Higher high than previous bar Close in upper 50% of bar

Bearish Divergent Bar

Bullish Divergent Bar

Close in lower 50% of bar Lower low than previous bar

Diagram 7

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Trader’s Guide to Charting

OOPS Pattern Declining indication -The current bar opens higher than the previous bar high. This can indicate an overreaction of the market and the equity will usually trade back down to the previous bars high. This can be used as another confirmation of a possible decline in the price.

Rising indication - The current bar opens lower than the previous bar low. This can indicate an overreaction of the market and the equity will frequently trade back up to the low of the previous bar. This can be used as a confirmation of a possible rise in the price.

In diagram 8, find the highlighted OOPS patterns and how often the price retraces back to the pre-OOPS price. This indicator alone can be a significant clue to the directional bias of the stock.

Retracement

OOPS

Diagram 8

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Trader’s Guide to Charting

Stochastics

Stochastics is a momentum indicator. It can indicate when a market is overbought or oversold. A crossover of the blue line below the red line when both are above the 75% line indicates a declining bias. While a crossover of the blue line above the red line when both are below the 25% line indicates a rising bias.

Diagram 9 shows the crossovers and how the price moves.

Declining Bias Crossover 75% line

25% line

Rising Bias Crossover Rising Bias Crossover

Diagram 9

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Trader’s Guide to Charting

Consensus Charts, the patterns they form, and the technical indicators described in this guide are one of the three critical parts (charting, strategy and management) of being a successful trader. With charting, the key is to look for consensus of multiple technical indicators, all pointing to the same directional bias. The more indicators that agree, the greater the chance of a profitable trade and one that is short term for a high profit.

Without charts, emotions and information based on biased or old news will influence a trader to make poor choices. Learning the art and science of how to interpret a chart will give you, the trader, a consistent approach to opening, closing, and managing positions.

Charting does not guarantee that every trade is a winning, profitable one. That is why a skilled trader has a variety of tools (strategies and management) available to them so the deck can be stacked in favor of a profitable trade, regardless of market conditions or direction of movement.

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Charting is essential to the success of a trader, regardless of the strategies utilized.

Chart analysis replaces emotion [email protected] and trumps financial media. 773-496-4757

www.OptionsMoneyMaker.com

Chart mastery is the key to becoming a confident and consistently profitable trader